Market Research: Change Agents

With the current state of our economy, I imagine that it’s harder than ever for startup companies to get off the ground or existing companies to launch new products or services. The very nature of their success requires intense scrutiny of the market to come up with the best differentiating strategy to make it work. While this would seem to scream “MARKET RESEARCH”, limited capital and resources force new ventures to be more judicious and efficient about how they collect and analyze data to build their business plans.

I recently spoke with Dr. Rob Adams, Director of Texas Venture Labs at The University of Texas at Austin. Rob is an active angel investor and is affiliated with numerous venture funds, several of which he started. He heads up what is formerly known as the Moot Corp Competition at the McCombs School of Business at UT in which aspiring entrepreneurial MBA and grad students from around the world present their new business ideas and plans to panels of investors. As a founding investor in more than 30 companies and having been involved in the development or launch of more than 100 products, I was interested in Rob’s perspective on how seriously market research is being conducted and used in early-stage companies or new market ventures.

Jonathan Hilland: I’ve been interviewing Change Agents in market research for this blog for about 9 months now, and several topics continue to surface in my discussions, most of which have to do with becoming more interactive with and gaining more insights from customers. But I was thinking that given your career in technology, in the markets that you watch as an investor, and as a business consultant for some of the small companies that you’ve helped incubate, that you might have an interesting perspective on how market research is being conducted and used, and whether you think it needs to evolve to get closer to customers and provide more insightful or useful feedback to companies.

Thinking about some of the early startups that you’ve been involved in, either directly or through ventures, how are they using market research in the business decisions? What are the kinds of research are they doing, and what do you think they should be doing?

Rob Adams: I have a slightly different application of what comes from market research. My almost exclusive focus around primary market research has always been trying to figure out if there’s a “there” there. That’s been my shtick on market validation. Secondary sources are good for getting a lay of the land and absolutely necessary. With primary research, it depends on what you want to get and what the best and most efficient methods are. My view is if I’m really trying to figure out what the serendipitous, subtle positioning that a startup has to take to have a chance at getting a shot at making something work, I personally have not found an electronic equivalent of the good old face-to-face, eye-to-eye way of sort of squeaking out what I really think of as the true competitive differentiation such that a startup has a fighting chance in the market.

JH: I definitely get where you’re coming from on wanting to do the face-to-face interviewing. We still do a ton of face-to-face interviewing and focus group moderating for that very reason. Anything that is concept testing or validation, messaging, brand architecture, anything that differs from the current “norms” of the market, we too tend to take a face-to-face approach to capture the body language, the non-verbal cues, and the nuances in that feedback. And I’m sure you see this when you’re vetting concepts for products or services or something a new company is going to bring to market – I think a big part of the face-to-face interview process that we see as valuable, particularly when we’re presenting anything that’s complex, is the visual confirmation of whether they get it, whether what you’re telling them even makes sense to them and fits in their ecosystem before you get to the point of asking if it’s desirable, new, interesting, innovative, differentiated, etc.

RA: Yes, you and I and everyone else can get the secondary sources, the Gartner and Forrester reports, for example. But anyone who reads those reports will kind of come to the same product conclusions, so what you end up with is a very generic product targeted at the average user of the average market. That’s a recipe for disaster in today’s startup world. You can’t go broad, you can’t go average – otherwise, you’ll have some appeal to everyone, but direct impact on no one. So that gets you the general direction to head, but you still have to figure out what your real differentiation is, what your tightly targeted market is, and how you’re going to dominate a very, very clear sub-segment of a broader market with a unique set of features. I don’t know any other way to do that other than the good old-fashioned face-to-face, to get the “ooh ahh” elation, frustration, and body language kind of read.

JH: In your opinion or observation, do you see early-stage companies doing enough of that or a lot of that, or do you feel like that’s missing to a certain extent?

RA: It’s missing in early-stage companies mainly because early-stage companies don’t have the capital in order to do it like they need to. What happens is the company that can generate some revenue or is moderately successful will have the option to do it. The company that never gets the rocket ship off the pad doesn’t generate enough cash and just doesn’t have the chance to do it. So at this point in time it really takes a company of reasonable size to be able to afford the time or the effort level required. Now there are a few exceptions to that – sometimes it’s almost cheaper just to build the product and throw it out there than to try to figure out what the market wants.

JH: What about the Texas Venture Labs that you direct at UT? To what degree is market research emphasized or evaluated in that competition? Can you tell when good research has been conducted as part of a team’s overall business strategy from what their output looks like? I recognize for the same budget reasons anything they do is probably going to be home-grown or self-conducted, but I’m just wondering if that gets emphasized on the front-end and if not, do you find the winning teams frequently having incorporated that into their process or their strategy or not?

RA: First of all, I’ve kind of shifted the investment competition away from an academic moot court style to a true investment plan and that’s bringing with it a significant amount of focus on true market problems, which in turn brings with it more and more validation of what the problem is. So yes, we’re beginning to see more focus on true problems and far less academic pursuits. The best example is a lot of these guys are now raising money even in this environment.

JH: To what degree does the market research effort or lack of effort make or break a team’s business plan submission?

RA: Well it depends on what’s going on. The “general” category of market validation is far more important than in the past. For example, you don’t need to validate the market that there’s a need for a cure for cancer; but if you had a “generic” cure for cancer, you would need to know which markets are most important and why. Do you go after the youth market because they have longevity? Do you go after the widest form of cancer because that affects the most people? So usually some form of fairly rigorous understanding of market strategy is far more required than ever before, and people find that the best way to do that is to talk to some level of customers. And again, that works for the competition judges as well. The investors who are looking at these plans want to hear from the team how many people they talked to, and when you say “talked to them” what does that mean – you interviewed them over a beer in a bar, or you had a conversation, took careful notes, recorded the interviews?

JH: When you have the occasion to lecture on new ventures, do you talk about market research?

RA: Yes, the first thing I teach them on and I spend most of my time on is market validation. The biggest indicator of success – it’s no secret – is how well the team can articulate the market problem. In my experience, that is the number one issue. Yes you have to have a good team, but you also have to have a good team that found a real problem. Most investors don’t care what the technology is, what the product does, or what the service offering is – they just want to know real market problems the team can address and move with the market.

JH: What advice would you give to the research community about where we need to be focused right now to deliver more value to someone like you as the end customer of research?

RA: Just like blogging has kind of blown up the old media empire model – e.g., The Huffington Post has no self-generated content like traditional newspapers, but acts as an aggregator with links to various news sources – I wonder if that style will really get entrenched in research. If there is really actionable data in the social media world and the blogosphere, we’re going to see it soon – I’m thinking of MarkLogic on the West coast and a series of other startups who are basically going in and crunching massive amounts of unstructured data.

JH: That’s a hard question and they’re not the first to work on constructing that kind of sniffing, listening methodology as a starting place to find out how much dialogue is happening around a particular subject or brand. But ultimately, they need to be able to dig into that in a meaningful semi-quantifiable way to actually qualify what’s being said.

RA: I agree. As an example, I think about Steve Jobs and Apple working on the first iPod. No one was going to say before an iPod existed, “Oh, I want an iPod”. They were complaining about the music selection, the cost, the fact that they have to buy the whole CD, they don’t like their stereo at home, etc. I don’t think any amount of social media digging around would’ve caused anyone to connect the dots that there was a market for an iPod. The companies I’m working with are trying to figure out what the next iPod is. So in a sense, even if you can crunch all this massive amount of social media, it’s still going to be extrapolation of a current line that addresses a real problem or unarticulated, unmet need and launches you to the next level.

Thanks to Rob for his candid perspective on how research should play a role in market validation and business planning in a competitive and risky economic environment.

NOW YOU TELL ME. How closely do you stick to the “truest” forms of market validation through traditional face-to-face research methodologies when testing new concepts that your company seeks to launch? Do you think there’s hope for extrapolating new ideas for products or services from the organic dialogues in social communities?

As I continue this discussion on “best practices” for bringing social media and market research together, I thought it would be appropriate to take a deeper look at what clients can and should gain from social content right now. I believe this sets the groundwork for defining the optimal applications for integrating social media in research studies. For this post, Mindwave’s own Vice President of Research and Marketing Programs, Tonya Parsons, interviewed Sam Decker, co-founder and CEO of Mass Relevance, for his perspective on social media insights and the tie-in with market research. Sam’s marketing and digital media experience goes back nearly 20 years with a background in startups as well as enterprise marketing and product development. Sam’s career began in the Bay Area leading marketing, sales, and product strategy at B2B and media startups, and serving on the board of the Word of Mouth Marketing Association (WOMMA). He then spent seven years leading Dell’s marketing, online, CRM, and customer-centricity strategy. Sam also led Dell’s consumer website development, building Dell.com into the largest consumer eCommerce site at $3.5B in annual sales. Just prior to co-founding Mass Relevance, Sam was the founding CMO at Bazaarvoice, a leader in SaaS social commerce technologies.

Tonya Parsons: Sam, for this blog Jonathan has interviewed what he calls “Change Agents” in market research to understand what they believe is changing – for better or for worse – in market research. How critical are these changes for their business? What are the factors affecting or driving those changes? How are they adapting to the changes? Or how are they asking their research vendors to adapt to these changes? A topic that continues to surface is around social media – how we integrate it into market research, and what customer insights can we gain from it. But it’s been debated whether social media and market research are really ready for each other. While social sites are certainly attractive sources given the millions of people who frequent them, some still see social media sites as “unmanaged” sources right now, and profiling people on these sites is difficult to do at the level required for true market research analysis. We also have to consider who we can realistically target as well as how we structure surveys that are administered to different audiences across different sites.

So it’s in this vein, tied with your extensive digital and social media experience and background, that I’d like to understand how you see market research and social media coming together.

Sam Decker: In the years that I spent at Dell, I was involved in a lot of research, usability studies, focus groups and surveys.  I started blogging and realized that marketing was changing and that more and more people were contributing content online.  And I knew that would affect marketing.  There wasn’t Facebook – that wasn’t mainstream – and Twitter didn’t exist, so it was just people starting to contribute content mostly through blogs.  At the same time, it was interesting to see Dell’s word of mouth reputation start to decline.  We did what we called first-party or first-source research, getting direct feedback from customers about our brand and saw that start to decline. We believed our marketing was getting more efficient, but it wasn’t because of the word of mouth.  I had the background in word of mouth marketing prior to Dell, so I started to realize that social media is about taking the analog word of mouth to digital means. And what is digital word of mouth?  How does a marketer play into that?  What is their role?

At Bazaarvoice, it was about getting your customers to write digital word of mouth on your own website; getting them to write reviews, answer questions, and tell stories. What I’m doing now with Mass Relevance is focusing on all this other user-generated content out there, and harvesting what people are saying and then integrating it into multiple contact points. I wouldn’t say directly for research purposes, but what I’ve found is that companies tend to listen more and actually use what customers are saying when they search.  It’s what I call “customer oxygen”– you can bring the customer’s voice into the company in a way that makes it operational at every level, such that managers have to breathe it in their day-to-day jobs.

TP: The point that you make about enabling clients to breathe the voice of the customer raises the question of whether we’re trying to fit a square peg into a round hole. The challenge that we often see with clients, and especially with research managers, is that they’re so used to that paradigm of taking information and somehow analyzing it and pushing it out in terms of recommendations for next steps and action items that there’s almost this drive and desire to make market research and social media one and the same. Is that something you hear from your clients? How do you guide your clients from that perspective?

SD: My opinion on it is that you have to have both.  There are times when you have very specific needs for information to make a decision that may not come in the right way through social media.  But at the same time, social media and customers’ contributions and participations are rich with data that could help companies make a lot of decisions on a continual basis.  I often talk about change management and I talk about the metaphor of the peacock and the woodpecker.  At times companies may need to do something that is big that gets lots of attention with sort of a turning point, as could be the case with market research.  So that’s the peacock because when the peacock plumes its feathers, everyone pays attention.  The woodpecker is just incessantly pecking every day. In business, that’s being in the day-to-day, bringing in data from the customers – and it’s not necessarily a research study; it’s knowledge from the customers that relates to operations that can be consumed. It gives you a real-time sense of how customers are thinking and how the market is shaping up.

TP: I agree to some extent. There’s almost a parallel stream where social media and market research work together, and that may be the optimal solution for some objectives. Part of the reason that we have this perspective is because you still have to recognize the purpose for which people engage in social media or utilize the social sites. Nobody signs up for Facebook because they’re dying to give their opinions to manufacturers about their products. So that’s one of the perspectives that we also try to talk to clients about – that you really need to understand how digital conversations are taking place, and you can’t just jump in with market research shoes and expect that everyone’s just going to respond to your surveys.

One of the things that people have been talking about from a market research perspective is rather than saying we have to figure out a way to integrate social media and market research, that it’s more about what market research can learn, at least conceptually, about how social communities have been able to create conversations. One approach that’s being tested is Market Research Online Communities or MROCs. So I’m curious about your thoughts on that – is there a place for MROCs to leverage the way social media is managed and pull that in to market research?

SD: I think there’s some validity in being able to blend the two together.  I think there are successful market research communities although you have to be careful, to your point earlier, of the sampling.  Who are the people that would want to actively participate in that kind of community?  And are they representative of some customer set or the prospect set that you’re going after?  I go to these networking groups and I see the same kinds of people show up again and again – and you’d think it’s going to be a bunch of people that are actually actively working in a particular industry, say high tech.  Well it’s actually the people that want to be working in high tech.  The people that hang out the most in online communities are not necessarily the people that represent the market that you don’t have.  So that’s the only warning I’d give about those online communities.  I think there can be a lot learned from observing and listening to things that are already out there, given the right community’s passion and interest.  So creating a whole new community may not be necessary.  But I think there can be things learned from social media, about how to get people to participate and contribute, as opposed to just the typical survey methodology – that is, you’re creating topic of interest or passion and facilitating discussion around things that people are interested in, rather than posting a survey and expecting a hundred answers back.

TP: One theme that seems to come up when you think about social media vs. market research is the aspect of listening vs. measuring or analyzing. Do you think this is a potential pitfall as managers look to social media to address their research objectives?

SD: The top two questions you get in social media are “How do you measure it?” and “How do you scale it?” When it comes to social media, the tendency is to not listen first or enough and to assume that everything should be measured and is measurable.  And I think on some of this you have to be able to make some courageous calls.  I went from Dell where I measured everything, and every decision was based on measures. While that was fantastic, it can also be myopic, depending on your measures. At Bazaarvoice, a startup B2B company, I knew I couldn’t and shouldn’t measure everything in the early stages. It was a situation where I should and could make the call of what direction to take our products and marketing.  I think some companies have the courage to make those calls. Companies like Amazon, Costco, and Southwest make some courageous calls regarding their brand and investments which may not be reflective or supported by operational measures but are reflective of what customers think.

TP: What about a marketer’s desire to manage the conversation to get the feedback they want or need? The interactive element of social communities is somewhat similar to our research focus group discussions, and as a common practice, we do not let clients directly ask questions of the respondents – they are filtered through the moderator to maintain objectivity and anonymity. How do you see this issue reflected in social media in terms of clients wanting to drive the discussion, or even defend their position or brand?

SD: That’s a great point.  I recall a time when a major company was getting some serious criticism from a blogger.  There was an opportunity to put the blogger and the CMO of the company on stage to “bury the hatchet” – something that would’ve gotten a lot of attention and deflated a rising situation. And that would’ve done it – that would’ve been the beginning of the end to it.  The blogger intended to ask hard questions, and the company would’ve had to say what they are doing to make changes and admit parts that they still are working on, and parts that have been improved.  Unfortunately, the company’s PR team declined, wanting to control the conversation and only say positive things.  Now I think there’s a different mentality, almost a positive side to admitting guilt.

It’s often hard to defend your brand when the masses are talking about it in blogs, as opposed to defending your brand against a competitor.  It’s more accepted when it’s business-to-business and you’re defending your brand, versus the consumer saying something and the brand being defensive about it.  Just like in personal relationships, sometimes I think you just have to know that when you come off as defensive, it elevates the discussion and gets more heated. One technique is to not speak directly to that person, that blogger or source, and talk in more general terms.  So let’s say you’re a major manufacturer and a blogger sort of dings you, pins you down on recycling.  Your response could be more general, talking not to or about that blogger, but more generally, widely about the plans that you already have in place on recycling that people may not be aware of.  So you don’t really call the blogger out, you sort of speak to the general public.

TP: And in a way that’s acknowledging that here’s something that’s clearly important to some people out here, so we should be talking about it. That’s a classic research objective – that is, determining what’s critical to your target customers and how your brand is perceived on those critical factors.

So as we wrap up here, what do you wish clients would think about as they engage in the social space?

SD: I wish they’d think more about all the customer touch-points that they have, and they’re growing if you think about all the Facebook members you have, the different social websites, and now the mobile sites.  If they start to think about increasing the percentage of real estate they’re devoting to social content and interaction, versus their own content, two things happen: one is that you start to understand it better because you have to manage it more actively; and the other part is the organization culturally speaking – which goes back to what I was saying about customer oxygen – they’re able to hear what customers are saying and interact with them, making it more operational than spending all their time on things that they were going to broadcast through their own content.

Thanks to Sam Decker for his interesting insights on social media consumption and his perspective on where it stands relative to market research. I believe this gives us a good framework to consider exactly what our purposes are when we say we want to figure out how to leverage social sites for market research.

NOW YOU TELL ME. What objectives do you believe make sense for leveraging social sites for market research? If you consider Sam’s advice to be listeners and observers versus trying to create or drive the conversation (as you would in designing a survey, for example), what would you expect to gain or lose compared to traditional market research? What are your thoughts on MROCs – how should they be used – what are the pros and cons?